Business Valuation – Preventing Type I /II and Type X Financial Losses

Statistics introduces the important notion of probabilistic error. There are two types of statistical errors when testing hypotheses: Type I (false positives) and Type II (false negatives). Corporate finance decisions depend upon accurate estimates of the future worth of particular investments. The ultimate aim is not to lose money by either overestimating returns and investing more than you receive back (Type I error), nor underestimating returns and not investing thereby foregoing a profitable business opportunity (Type II error). Type X errors occur when executives don’t properly diagnose the underlying business problem, don’t know which disciplinary theory is appropriate for / relevant to solve a problem, don’t understand the details of a particular methodology (and its limitations), or some combination of the preceding. Type X errors occur more often in business than executives care to admit, and their financial consequences can be catastrophic. While accounting is the language of business, value is the essence of business. Unlike accounting, however, there is no no generally accepted definition of business value across business functions. Avoid Type I, II and X financial errors when weighing business opportunities! Use the Integrated Value Process (IVP) framework to translate the essence of business (value) into the language of business (accounting). Read More

Integrated Value Management: A Principia Valorem for Business Value

Solving math problems requires using mathematical “first principles”. It also requires understanding multiple complementary domains (Algebra, Geometry, Calculus, Statistics & Proability, etc.), the types of problems each addresses, and how these domains connect / “fit together.” Business management also has multiple domains, i.e. Strategy, Marketing and Operations. They use multiple academic disciplines (e.g. Economics, Finance, Psychology, Quality, etc.) to solve different but complementary problems. However, each domain / discipline is insufficient by itself to resolve complex issues like Integrated Value Management (across a company / its value chain). All must be integrated and synthesized. Sadly value integration is sorely lacking in business. Use the Integrated Value Process (IVP) framework to manage value holistically and optimize your value flows! Read More

Value Chains – Whither “Value Integration?”

Business needs integration! Company value chains are increasingly riddled with inefficient and ineffective inter-company handoffs. Value chains require value to flow to the ultimate customer. For value to flow, three value chain “pipes” — physical, informational, and financial flows — need to be integrated. Intra- and inter-company processes also need to be aligned. Alignment requires a thorough understanding of value, its many definitions, and how the alternative definitions of value converge. If value is not properly understood and managed, multiple value perspectives of value chain stakeholders will diverge. Value gaps result. Value gaps can be eliminated and prevented through value integration. Use the Integrated Value Process to optimize value flows across your enterprise and value chain!
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Value Gaps: Black holes devour business value

Scientists recently released the first image of a black hole. The public viewed what it had formerly thought was un-seeable. We now had proof: black holes exist! This conclusion is partially true and partially false. When can we believe something — when do we “know” it is true? Conceptual theory generally predates empirical evidence. Thought experiments predict things we may not yet “see.” Oftentimes the evidence is present, but we need new “ways of thinking” to visualize it. That is the case with “value gaps” — the black holes of business value. Use the IVP framework to see them. Read More

Value Integration – A Rubik’s Cube

“Can’t you just give me the two-minute elevator conversation about value?” While I understand the intense time-pressures faced by today’s executives, I also recognize the dangers of trying to communicate via Tweet-like bursts. Relevance and appropriateness are key. Effective communication is a two-way interaction: it entails cognitive interplay between the receiver and deliverer of a message. Any effective discussion of value must cover three areas — the scope of the company’s “value puzzle”, the desired degree of “value knowledge”, and the intended “value objective(s).” Use the Integrated Value Process (IVP) framework to address all three. Read More

Monetizing Value: Essential Considerations & Caveats

Now more than ever, it is essential to have a deep understanding of the concept of value. More importantly, executives need simultaneously to manage multiple value perspectives across their organizations and value chains. But whose definition of value “wins”? How is value best measured? In today’s hyper-competitive business world, we are pressured to quantify the price of everything so that we can justify the value of anything. Market price has become the shorthand indicator of value. Monetizing value, however, shouldn’t bee the end goal of professionals. Creating value should be! Use the Integrated Value Process (IVP). Read More

Value-added Knowledge Management (KM): Whose value anyway?

To be perceived as strategic, Knowledge Management (KM) professionals need to understand the concept of value. Perhaps it comes as no surprise to KM practitioners that there is surprisingly little consensus on the definition of value in academe / practice. The ensuing alternative definitions of value lead to mistranslation / misinterpretation / misalignment. ​ Read More